Family offices need to make smart IT investments to minimise risks
Many family offices, when it comes to assessing operational risk factors, would benefit from a more structured approach.
Family offices tend to have a reasonably sound appreciation of investment risk, but anecdotal evidence suggests that when it comes to assessing operational risk factors, many would benefit from a more structured approach.
The private banking industry has witnessed an explosion of having vigilant controls in risk and compliance provisions over the last decade. This is now being mirrored in the family office arena as well.
While the size and scale of the office might dictate the level of investment that can be made to mitigate such risks and remain viable, advisors are available for most risk areas.
But are family offices prepared for such tight risk and regulatory frameworks? That seems to be a question most family offices are still trying to answer accurately.
Beyond investment risks, there are obvious operational risks that family offices need to pay close attention to. But perhaps many of them do not consider these risks to be sufficiently real until it is too late.
Major operational risk factors include loss of key staff; information security; safety of family office officers and family members; and reputational damage.
Risk control also requires a certain level of investment – on the technology and the people fronts.
Technology now facilitates the analysis of large amounts of data, helping to identify areas that require greater controls. Risk analytics and risk control software have a significant impact and capable of increasing efficiency and providing opportunities to mitigate costly mistakes.
There are also an increasing number of IT-related firms that focus on risk measurement and help family offices build appropriate processes, protocols and controls.
Family offices – especially the large ones – cannot get away from the need of creating efficiencies via smart technology investments.
Family offices will also do well to consider alternative solutions such as outsourcing certain functions to third parties, whether on the basis of a specific risk identified or an administrative function where they can buy into the service and risk framework and control of a larger and perhaps specialised service provider.